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Divestment of FPSO Capital By E&P Companies Could Adversely Affect the FPSO Business as well as Offshore Production in the Near Future

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Floating, Production, Storage and Offloading (FPSO) Industry to 2015 - Rise of Ultra Deep Water Offshore Oil and Gas Production Leading to Industry Growth


Divestment of FPSO Capital By E&P Companies Could Adversely Affect the FPSO Business as well as Offshore Production in the Near Future

Floating, Production, Storage, and Offloading Vessels (FPSOs) are gaining significant importance in the offshore oil and gas industry, as they could be set up at offshore sites with simpler procedures, and eliminate the need for using complex pipeline network to transport oil or gas from the offshore production site. This makes FPSOs deployable in deepwater offshore oil fields, where subsea pipelines are not feasible to install for crude oil and gas transportation from the oil field to the mainland. As they are movable with relative ease and cost-viable than fixed platforms, they are technically and economically viable to be deployed in oil fields with smaller reserve potential, where establishing a fixed platform rig could prove economically unattractive. Even in geographically challenging offshore regions affected by tornados or cyclones, utility of FPSOs gains advantage, as they could move away to a safer place temporarily when hostile environments pose substantial risk to the FPSO vessel.

Overall, these advantages have even resulted in the upstream oil and gas industry planning to deploy FPSOs in key offshore regions, such as deepwater US Gulf of Mexico (USGOM). For instance, recently Petrobras America Inc. plans to deploy a Floating, Production, Storage, and Offloading Vessel in the region.


However, in the wake of the US Gulf of Mexico oil spill disaster, offshore oil and gas exploration and production companies worldwide, and especially those operating in the USGOM and offshore Norway plan to divest some of their investments in Floating, Production, Storage, and Offloading Vessels as a measure to reduce their capital allocations and thereby mitigate financial risks to an extent.

This could mean a temporary threat to business development growth for FPSO contractors, besides causing inevitable delays in offshore production, as frequent changes in ownerships or lease-owning could slow down operations and hence, adversely affect production rates.

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Increasing Deep And Ultra Deep Water Exploration and Production Is Driving the Growth of the FPSO Industry

In the recent past, offshore oil and gas exploration has rapidly spread to deep


and ultra-deep waters in the search for fresh oil and gas reserves with attractive production potential. This is a marked shift in trend from shallow water offshore drilling till the 1990s.

Hence, in recent years, with the near complete exploitation of the shallow water resources worldwide, companies have begun drilling deeper in the oceans, thereby boosting the need for deployment of Floating, Production, Storage and Offloading (FPSO) and Floating, Storage and Offloading (FSO) vessels, for achieving operational advantage and cost effectiveness with regards to transportation of produced oil and gas from deepwater offshore oil and gas fields, to the mainland.

Another point noteworthy would be that deepwater projects enjoy an advantage over shallow water projects is that the former have lease arrangements much longer and have a much greater time period for completion, an advantage which boosts deepwater offshore drilling activity. Also, technological innovations in the recent past also have, and would continue to boost the deepwater offshore activity, thereby providing an impetus for the rapid growth in the FPSO industry.

Hence, considering the current scenario of the offshore oil and gas industry, the


FPSO and FSO industry is expected to witness a technological revolution to meet stringent operational standards.

Petrobras’ Floating Production, Storage and Offloading (FPSO), for instance, which is expected to be introduced in 2011, is a converted double-hulled tanker that can operate at ultra-deep water depths and also will have a clastic turret buoy which could be used during challenging environments such as cyclones while the FPSO can be moved to safer waters.

FPSO Market Expected to Witness Rapid Growth Due to Their Economical Feasibility in Deployment of Small Reservoirs

As the oil demand and hence oil prices are expected to become attractive in the future, offshore oil and gas exploration and production companies are expected to develop interest in effectively exploiting even small-sized offshore reservoirs. This, in turn, would encourage them to lease-own Floating, Production, Storage and Offloading (FPSO) vessels and deploy them for shorter time duration than for FPSO deployment in huge offshore fields, as large capital investments could be avoided, thereby making the project financially attractive.

A leased FPSO could be defined as an FPSO which is rented to an operator by a third-party for use on a specific field. However, an owned FPSO is a FPSO, which is bought and owned and possessed in its entirety by an offshore oil and


gas exploration company.

Even for fully owned FPSOs, future investment benefits could be accomplished by the owning exploration company leasing the FPSO to another company, or by reselling the Floating, Production, Storage and Offloading (FPSO) unit after a certain usage or time period. The FPSO could also be converted into an oil tanker vessel and sold to an oil transportation business group.

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